Document Actions

A Climate Plan For The 21st Century Economy

Many firms have responded to the new climate paradigm by limiting their impact. But without a national strategy on climate change, even these efforts aren’t enough to address the underlying cause of a changing climate.

Commentators often remind us that the 21st century economy is a knowledge economy. Institutions with an information edge gain an advantage over their competitors. And lately, businesses, investors and policymakers have been grappling with some uncomfortable facts.

Climate change presents hard truths that American businesses can’t ignore. Many firms have responded to the new climate paradigm by limiting their impact—investing in renewable energy, shoring up their supply chains and boosting energy efficiency. But without a national strategy on climate change, even these efforts aren’t enough to address the underlying cause of a changing climate.

Today, that changes.

In a major speech at Georgetown University, President Obama outlined an historic plan to address climate change through sweeping federal actions that will have far-reaching impacts across the country and potentially as far away as China and India. Among other steps, the plan will set power plant limits on carbon emissions, boost deployment of renewable energy on public lands and in federal buildings, and support strategies that will increase American resilience to extreme weather spurred on by climate change. The President’s plan answers the call of the nearly 500 businesses that have signed the Climate Declaration who see tackling climate change as an American economic opportunity.

Any one of the President’s proposals warrants further analysis, and it’s certain there will be plenty of it in the weeks and months to come. For now, I’d like to focus on one of the most important aspects of the president’s action plan, the new carbon pollution limits on the electric power sector, which today accounts for one-third of U.S. greenhouse gas emissions.

For the first time ever, the President is directing the Environmental Protection Agency to set standards for carbon pollution, but for the vast majority of utilities, managing emissions is nothing new. When Congress passed major amendments to the Clean Air Act in 1990, utilities cut NOx and SO2 emissions by 70 percent and 72 percent, respectively, over the next two decades. In other words, when electric power utilities are faced with strong targets, experience shows they can meet them. It’s high time that carbon was held to the same standard.

The industry is ready. As Nicholas Akins, CEO of American Electric Power, one of the nation’s largest coal-burning utilities, said on a recent earnings call, “The transformation of our generation resources, in response to the market and EPA mandates, is going to be an opportunity for us.” In response to the President’s new proposal, the Clean Energy Group echoed Akins’ sentiments in a statement signed by Calpine, PSEG, National Grid, NextEra and other leading power companies, saying, “As our member companies’ experience demonstrates, greenhouse gas reductions can be achieved cost‐effectively.”

Indeed, the electric power industry is already taking steps that are cutting carbon emissions. In 2011, CO2 emissions were down seven percent from their peak in 2008, largely due to the shift away from coal to natural gas, the rising role of renewable energy and increased investments in energy efficiency. It’s no wonder the industry is upgrading. The average U.S. generating plant is more than 30 years old; some are twice that age. Many plants, including base load coal-fired plants, are reaching the end of their lives and must be retired, retrofitted or replaced.

With these retire/replace decisions in mind, Ceres recently analyzed utilities’ resource options, from large scale nuclear to small-scale PV solar, and relative ranked them in terms of cost and risk. We looked at the long-term costs for each option, as well as exposure to specific risks, like delays and overruns, regulatory risks and potential problems involving fuel, financing, and rate setting. We found that some of the lowest-cost, lowest-risk resources, like onshore wind, also emit the least carbon. And the energy option with the lowest level of risk and lowest costs of all is energy efficiency.

Indeed, energy efficiency may prove to be the key component of Obama’s plan. NRDC has introduced a proposal that would give power plant owners flexibility for meeting emission reduction requirements by “giving credit for increases in energy efficiency and electricity generation using renewable sources and allowing emission-rate averaging among fossil fuel−fired power plants.” The NRDC proposal also gives states leeway to decide how to direct utilities to cut emissions, so long as they meet their targets. This plan, if adopted by EPA, could go a long way toward allaying any fears within the industry over adaptation planning.

In the meantime, the facts are clear: Climate change is threatening our economy, and a bold response is warranted. The President’s plan may not be perfect, but it gives the electric power sector the information it needs to build solutions for the 21st century economy.

The energy sector should take these bold new standards as a challenge—and rise to the occasion.

Mindy S. Lubber is the president of Ceres and a founding board member of the organization. She also directs Ceres’ Investor Network on Climate Risk (INCR), a group of 100 institutional investors managing nearly $10 trillion in assets focused on the business risks and opportunities of climate change.
Mindy regularly speaks about corporate and investor sustainability issues to high-level leaders at the New York Stock Exchange, United Nations, World Economic Forum, Clinton Global Initiative, American Accounting Association, American Bar Association and more than 100 Fortune 500 firms. She has led negotiating teams of investors, NGOs and Fortune 500 company CEOs who have taken far-reaching positions on corporate practices to minimize carbon emissions, water use and other environmental impacts. She has briefed powerful corporate boards, from Nike to American Electric Power, on how climate change affects shareholder value.